I want to start investing my money in stocks, but I don’t know where to start.
I’ve always thought that one of the best things about investing in individual stocks and bonds yourself, as opposed to hiring managers, is that you’re learning first hand about all the ins and outs of the investing game. And if you’re the kind of person who likes to do research on a topic and has a do-it-yourself attitude, stock investing could be for you.
But investing is a risk and it’s important to understand that when you do, your stocks will not just “go up.” Your investments could lose money, perhaps right from the start. The hope is that you think long-term and can live with the ups and downs. If you can’t, then investing in individual stocks is probably not for you. But if you and your spouse agree that you’d both like to proceed and develop an understanding of investing and the investment process and for having fun while you learn, you cannot beat stocks and bonds (This article focuses on stocks, but bonds should also be considered—for diversification, income and added safety).
Your parents and grandparents may have invested in stocks, and you might be wondering if the time is right for you and your spouse to do the same. Make sure that, at minimum, you have accomplished the following financial tasks before investing in individual securities. Otherwise, you might need to liquidate stocks at just the wrong time:
- Your credit cards are paid off monthly.
- You have started an investment portfolio through your company’s 401(k) or 403(b) plan, or within an IRA.
- You have built-up a safety cushion of cash that will cover your expenses for at least 2 to 4 months.
- You and your spouse are making more than you spend and you are both comfortable with the idea of investing in stocks.
- You have at least $10,000 (above the amount of your safety cushion) to start a stock portfolio.
Ready to begin?
Make sure you read some books and articles about investing. You want to develop a sound investment philosophy. It took years of investing and an MBA degree before I felt comfortable in my own approach to building a stock portfolio. A recent article at msnbc.com discusses my style of investing and you might find it informative (click here).
You will want to open a brokerage account, and many of the brokers out there, including Schwab and TD Ameritrade, have excellent learning tools on their websites. One nice thing about brokerage accounts is that your cash earns interest while it sits there, so once opened, you need not be rushed to make investments.
Voila! You are building a portfolio. If you do this right and you have time on your hands, it is possible (by no means certain) that you are on your way to building a well-diversified portfolio, but remember, for instant diversification, individual securities are not an option. In fact, most financial planners will advise you to stay away from individual stocks until you have a couple hundred thousand dollars to invest.
As a registered investment adviser, I’m not allowed to make investment recommendations to people I don’t know. As a portfolio manager, I think you would make more money by hiring someone like me than by trying this on your own. However, as a guy who values research and the learning process involved in investing, I think you and your spouse could get years of enjoyment and could force yourselves to save more than you would otherwise if you get involved in building your own portfolio right now.
J. Bryant Evans, MBA, is an investment adviser and portfolio manager at Cozad Asset Management of Champaign, Ill. He may be reached at bryant@cozadassetmgmt.com or 217-356-8363.
Steve Cooper is the co-founder and editor-in-chief of Hitched. You can follow him on Twitter at @hitchedmedia.
